the tax accountant that prepared my 2018 US Federal taxes forgot to carry over the allocatable amount ($3000) of a capital loss that I incurred some years ago. In the previous years, I always carried it (at the maximum rate of $3000 per year).

I don't really care for the mistake since my AGI for 2018 was already 0 due to using the Foreign Earned Income Exclusion, so my tax would not change.

However, I'm now wondering if this mistake will prevent me to keep carrying over the still unused part of the capital loss in the coming years.

What do the Federal rules for carrying over capital losses say in case there is a gap in usage?

  • 1
    Did you have capital gains in 2018 that the loss could have offset? Sep 16 '19 at 19:33
  • @Acccumulation no
    – user180940
    Sep 16 '19 at 21:07

From IRS Publication 550, Investment Income and Expenses:

When you figure the amount of any capital loss carryover to the next year, you must take the current year's allowable deduction into account, whether or not you claimed it and whether or not you filed a return for the current year.

So based on your question, even though you had no tax liability due to other credits/exclusions for the 2018 tax year, you'll have to reduce any capital loss carryover by $3000 (for 2018), going into 2019.

  • The 2018 return should be amended to show the $3000 being used up, right?
    – nanoman
    Sep 17 '19 at 18:39
  • In my opinion (IANAA), filing a corrected Schedule D and 1040X would be the appropriate action. Note that if you don't, the IRS may/probably update their records with what they calculate as the correct values at some future time. Assuming you owe no tax, its more administrative for all sides. What would be actionable/penalizing would be using a $3000 loss that you didn't have. Sep 18 '19 at 0:18
  • 1
    And to be clear, 1040X is the form for an amended return.
    – nanoman
    Sep 18 '19 at 0:38
  • @MorrisonChang thank you. Indeed, I was really trying to avoid filing a 1040X.
    – user180940
    Sep 18 '19 at 8:10

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